Last week, Donald Trump and Jean-Claude Juncker jointly announced a deal to resolve the developing trade war cause by US steel and aluminium tariffs on the EU and retaliatory tariffs on US products. Clearly Trump’s strategy of creating chaos, getting the attention of his target and then forcing them to the negotiating table has been effective.

The WTO has also reported that we are actually seeing an increase in trade restrictions around the world, and not only are we going in the wrong direction on trade liberalisation and reduction of market distortions but we are increasing our speed.

So what effect will this deal have in combating the global proliferation of trade restrictions. To some extent, we have been here before. What Trump and Juncker have agreed sounds like a revival of the dead Transatlantic Trade and Investment Partnership, the TTIP. That negotiation failed on the same grounds as this one might fail – regulatory, standards and technical rules that affect the trade in goods in particular. The fact that there is an agricultural component – soybeans – means that Trump’s recently expressed hope of a transatlantic area of no tariffs, subsidies or distortions while not complete has a fairly positive starting point.

From the EU perspective, getting the prospect of further tariffs (on cars – 25% was promised) off the table is very important, and this has at least been temporarily achieved, but the EU knows that there is now a sword of Damocles hanging over them so that if the negotiating does not go well, the US could well implement its high tariff strategy again. This is much greater pressure than existed at the time of the TTIP, and alters the negotiating dynamic in favour of a conclusion broadly on US terms. The EU will have to make sure that as this headline agreement is reduced to text, the US will withdraw its steel and aluminium tariffs. After all this is the prize that Juncker specifically sought.

From the US perspective, Trump did well but did not get all he wanted. Cars have been excluded, and the US is very concerned about the 10% common external auto tariff (versus a US tariff of only 2.5%). Globally, the auto sector has historically been a highly protected and protectionist sector, whether it is hiding behind a 10% tariff in the EU, or US automakers virtually demanding a guaranteed market share in the negotiations of the US-Korea Free Trade Agreement. While Germany seemed more amenable to lowering the car tariff, the French refusal seems to have won the day. On the other hand, French concerns about Trump’s focus turning to EU protectionism in agriculture seems to have been partially lost with the soybean deal. Since many of the barriers to US agriculture in the EU are regulatory, the US could use this to start to make progress on reduction of regulatory barriers in agriculture in the EU, a seemingly intractable problem.

Perhaps the most interesting element of the deal relates to third countries. The agreement to collaborate on third country distortions such as State-Owned Enterprises, intellectual property violations, and other market distortions is directed at China, and getting the EU and US to collaborate on a serious joint approach that might have an actual effect on another intractable problem that has dogged global trade for almost twenty years is a development that should not be underestimated. If the US and EU do in fact collaborate seriously on China distortions and other trade barriers, then China will be concerned about this rapprochement. Russia also will be concerned about US/EU rapprochement. Russia has its fair share of state owned enterprises, state interference in the economy, intellectual property violations and so forth. The LNG deal is a dagger aimed at the heart of Nordstream 2, the gas pipeline that would make Europe even more dependent than it already is on Russian gas.

This is certainly a place to start. It is the beginning, not the end of what could be a long negotiating process. But jaw, jaw is infinitely preferable to war, war and we should not lose sight of this achievement. Donald Trump, despite the allegations that he is a protectionist, has now twice advocated for no tariffs, no subsidies, and no distortions in trade agreements. But he has also said that tariffs are great – anathema to free traders. But, the global trading community must hold him to the first of these pronouncements. With the multilateral trading system in disarray, Trump’s role as an agent of chaos and disruption may prove to be the only way of forcing a reduction of anti-competitive behind the border trade barriers that destroy wealth and take away the benefits of border barrier liberalisation.

Shanker Singham

Shanker is the Director of the International Trade and Competition Unit (ITCU) of the Institute of Economic Affairs. The ITCU is focused on providing advice to the UK government, industry and media on the Brexit negotiations, among other trade policy issues. As one of the world’s leading trade and competition lawyers, he has worked on the privatisation of the UK electricity market, the transition of the Soviet, Central and Eastern European economies and the apertura in Latin America. He has worked on the accession of Poland and Hungary to the EU, the WTO accessions of a number of countries, including China and Russia.
Shanker was educated at St. Paul’s School, London and has an M.A in Chemistry from Balliol College, Oxford University and postgraduate legal degrees in both the UK and US.

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